Case Study for Distribution Channel of Lubricants and Franchise Network of Korea 91
Case Study for Distribution Channel of
Lubricants and Franchise Network of Korea
Kam, Woo-Kyoon’ «Lee, Sang—Youn"*
In modem society the Lubricants is widely used everyday life such as transportation and
industrial plant This study aims to provide an overview of the distribution channel of
Lubricant and it’s history of development in Korea. For this purpose, this study explores
the basic knowledge and it's characteristics of lubricant which is essential goods for all
transportation including cars and for all industrial facilities to produce their own products.
According to development of industry and economic grow, the distribution channel also
expended and become more complicated. Especially as Lubricants has both characteristics
of consumer products and industrial products, the distribution channel is also developed
different ways. I will attempt to summarize the differences between each distribution
channels including franchise network of automotive repair shop and issues on role and
responsibility of manufacturer and distributor. And then I hope to suggest the improvement
of distribution channel
Key Words : Lubricants, Distnbution Channel, Consumer Products, Industrial Products.
Manufacturer and Distributor, Franchise Network of Repair shop
Introduction
Technology of Lubricants is improved from the 18th century Industrial Revolution with
invention of steam engine and it had been the important role for development of
industy(Piro & Wessol.2001). Lubricants is essential expendable supplies of all machinery
and equipment for ordinary operation in industry and the basic necessities for all
transportations including the automotive, train, aircraft and ships. So the Lubricants has both
* Doctoral Student in Business Administration, Sejong Univensity(dragonlam7@gmail com)
‘** Professor, School of Business, Sejong University, Conesponding Authoy(ai?llee@hamnail net)92 Journal of Franchise Management Volume 4 Number 1 (Serial Number 6)
characteristics of industrial materials and consumer goods.
In domestic market, by 1997 the lubricants market show an higher annual growth rate
over 8% in the last 10 years but in 1998 in the beginning of economic crisis, the
lubricants consumption is sharply decreased by 24% than precious year(KLOIA, 2012).
Since 2000 until 2003 an anual consumption is reduced 1.2% level every year and after
that the market is recovered slowly. It was a big tuming point in Lubricants market as the
purchasing behavior of buyer is changed for considering the cost more seriously. In recent
years, factory operation rate is decreased and extended drain intervals of automotive
lubricants according to improvement of product quality(Iohn, 2010) and saving mind of
consumer influenced by dull economic situation So the annual growth rate of market is
expected 2.0 to 4.0 % level for the time being
In Korea from late 90s when ZIC brand launched by SK, consumer select the Lubricants
brand by themselves before that mechanician of seller choose the brand for customer's
vehicle(KPC, 2005). As ZIC brand was advertised and held promotion aggressively
consumer recognized Lubricants brand and then market is divided by local product and
imported product market and market competition became more severe
Distribution channel of Lubricants is classified its application as automotive lubricants,
007) as need
ding to this
need. For example industrial Lubricants distribution has B2B structure and automotive
industrial lubricants and marine & aviation lubricants market(Mang & Dresel,
of each market user is different and distribution channel is customized aci
Lubricants distribution normally has B2C structure except the case which car manufacturers
purchase products. Another extraordinary distribution channel is marine and aviation market
because vessel and aircraft have to be supplied through the worldwide distribution network
wherever they land In this study we focus on industrial and automotive Lubricants
distribution channel as mentioned reason above
‘The role of distribution industry is to increase the competitiveness of the manufacturer
between the production and consumption and enhance the benefit of consumers(Han, 2006)
Additionally it plays an important role in creating and promoting the demand of product
and initiate the manufacturer's technical innovation for new product. The current distribution
system is more diverse compared to traditional distribution channels in the past, as like
e-Business and MRO. Furthermore in recent years, including distributor and manufacturer,
fiont-to-back related industry develop the B2B networking and SCM based on advanced IT
system, So, aim of this study is to understand the market of lubricants and distribution
system for more effective and valuable factor of distribution system in the futureCase_Study for Distribution Chamnel of Lubricants and Franchise Network of Korea _93
I, Lubricants
1. Characteristic of Lubricants
A Lubricant is a substance introduced to reduce friction between moving surfaces(Lim é&
Lee, 1996). It may also have the function of transporting foreign particles. The most
important function of lubricants is the reduction of fiiction and wear and in some cases, the
relative movement of two bearing surfaces is only possible if a lubricant is present. Thus
it contribute to saving the energy and resources. Besides internal combustion engines, the
main application of lubricants are vehicle, industrial gearboxes, compressors, turbines and
hydraulic systems
Besides the main fimetion which reducing the fiiction and wear of moving pat of the
machine which increasing the efficiency of the machine and extend the life of
equipment(Pirro & Wessol, 2001). And it transfer the heat thus cooling and eneble the
continuous movement of the machine. Another role is protecting against wear and
preventing corrosion. For hydraulic machine lubricants transmit the power very efficiently
and it also prevent the rust. Lubricants forms oil film between the piston and the cylinder
which perform sealing action to prevent the leakage of compressed gas. Summarized key
function of lubricants are 1) Reduce friction 2) Transfer heat 3) Carry away contaminants
and debris 4) Transit power 5) Protect against wear 6) Prevent corrosion 7) Seal for gases
8) Stop the risk of smoke and fire of objects 9) Prevent rust.
2. Production of Lubricants
Primary raw material of lubricants is base oil which converted from crude oil, The
process of converting crude oil into a finished base oil is referred to as refining(Chitnis et
al, 2010). For manufacturing base oil, the actual refining process begins only after the
distillation stage. First step of typical manufacturing is distillation of gasoline, kerosene and
diesel ete from crude oil, After impurities are removed from the remaining residue by
atmospheric distillation, base oil is produced, Finished product of lubricants is blended with
some additives for different types of lubricants according to the intended purpose
‘The production of simple lubricants normally involves blending processes but specialties
often require the use of chemical processes such as saponification for grease, esterification94 Journal of Franchise Management Volume 4 Number 1 (Serial Number 6)
for ester base oil and amidation for metalworking lubricants Further manufacturing
processes include drying, filtration, homogenizing, dispersion or distillation
see .
Menges, Propane De-asphalted vacuum residue
[Fig, 1] Process of Lubricants Production
Source ° Girish Chitnis, Simon Hacker, Tim Hilbert (2010) ‘Technology for high-quality lubricants
production" ExxonMobil research and Engineering, March, 2010
{Table 1) Domestic Production Capacity of Base Oil
(Unit : Barrel Per Calendar Day)
Company 20m 2012
S-0il TOTAL 35,000 35,000
SK Lubricants 21,000 26,000
GS Caltex 26,000 26,000
Total 82,000 87,000
Souree * Korea Lubricating Oil Industries Association
Classification of lubricants is different according to by base oil, by application, by
performance standard etc. It can be classified by base oil type as mineral lubricants which
traditionally used and synthetic lube which including less impurities than mineral lubricants
According to application, it can be classified as Automotive, Industrial and Marie &
Aviation(Singh, 2002). In automotive group, there are engine oil, transmission oil, gearbox
oil and fluid oil by usage. In case of industrial group there are more detail classification
such as hydraulic, compressor, bearing, circulation, turbine, gear and ete. as each industrial
necessityCase_Study for Distribution Channel of Lubricants and Franchise Network of Korea _95
3. Lubricants Industry
Lubricants industry is related across the wide range of other industries and directly
affected because this industry can be increased through the other industry developments
Lubricants make the mass production possible and improve the growth of machinery
industry and by retum it improve productivity and technical progress of the re-foundation of
the lubricants industry(Lee, 1996). In addition, this industry promote the development of
tertiary industry in connection with the sales and logistics of lubricants
Lubricants industry is mechanism industry and capital-intensive industries which large
investment and accumulation of refining technology is required for mass production(KPA,
1986). From the end of the nineties, the petroleum industry was affected by a wave of
mergers. These created new and larger lubricant structures at the merged companies. The
principal reasons for these mergers were economic factors in crude oil extraction and
refining which resulted in lower refining margins
There are about 1400 lubricant manufacturers ranging from large to small. On one hand
there are vertically-integrated petroleum companies whose main business objective is the
discovery, extraction and refining of crude oil. Lubricants account for only a very small
pat of their oil business and around 200 such national and multinational oil companies are
involved this manufacturing group. On the other hand about 1200 independent lubricant
companies mainly concentrate on the manufacturing and marketing of lubricants and view
lubricants as their core business. While the large, integrated companies focus on
high-volume lubricants such as engine, gear and hydraulic oils, many independent lube
companies concentrate on specialties and niche business, where apart from some tailor-made
lubricants, comprehensive and expert customer service is part of the package(Gosalia 2010)
4, History of Domestic Market
The root of the domestic lubricants industry share history of petroleum and refining
business. It was started in the early not by indigenous technology by foreign brand and
technology affiliated. It's not clear from when petroleum was used in Korea but estimated
from 1880 according to several historical records. Before this people used vegetable oil or
animal fat for lighting In 1880s the petroleum was introduced but for industrial purpose it
supplied from the Japanese colonial era as their circumstance necessity(KNOC, 1999).98 Journal of Franchise Management Volume 4 Number 1 (Serial Number 6)
After Japanese annexation of Korea in 1910, foreign oil companies such as Standard
Oil, Texaco and Shell began in eamest and Standard Vacuum oil established first gas
station, Yeokjun Station. Each foreign oil company found the distribution company and sold
the product via distributor with brand as below.
(Table 2) First Distribution Channel and brand of Petroleum.
Foreign Oi Company Standard Vacuum Oi Texas Oi Shall Oi
Origin USA USA UK
Ghosun Jungang Wiyu
Distributor North Chosun Miyu Jeil company
South Chosun Miyu
Gas Station Yeokiun Station Tongro Station
Yongma=Pyo
(PeccuelGesine) Jeok-sak
Brand (Pinetree/Carosene) ByulPye (Star) | dogae~Pre
Songti_Pye (Red Shell)
(Vietory/Carosene)
Source : 100 year of Korea Petroleum Industry
In the 1930s, as Japan invaded other countries, circumstances of petroleum distribution
was changed. In 1935 for more stable supply Chosun Petroleum Co, Ltd. founded and the
first refinery plant annual capacity of 30 million tons was constructed in Wonsan. Wonsan
plant was expanded as annual capacity of 40 million tons and in 1940 started to produce
Lubricants and supplied machine oil. It was the premium level of Lubricants and new step
for domestic lubricants distribution.
After the liberation in 1946, US Military government established Petroleum Distribution
Agency (PDA) for the import and distribution of petroleum products and sold military
products to the public through the PDA Chosun Petroleum Co was also subject to the
management of military and their distribution channel was absorbed on the PDA and
additionally petroleum distribution combination which is responsible in each region was
formed. Before Korean wer, in 1949 Korea Oil Storage Co, (KOSCO) which joint venture
of 3 major ail company was established for the storage and sale of all petroleum operations
and this time almost all of Lubricants was U.S. military's and reproduction of used one
In1950 due to Korean War, foreign oil company such as Standard, Caltex and Shell pulled
out the business from Korea and KOSCO was dedicated to direct sales.
In the 1960s govemment schemed a S-year economic development plan for economicCase_Study for Distribution Chamnel of Lubricants and Franchise Network of Korea _7
independence and improvement. To achieve the goal government caried forward a plan to
build industrial production facility and to develop the import substitution industries support
Construction of refinery plant was the core plan for infra structure of economic
development. One of these strategy was localization of Lubricants and then Kukdong
Petroleum Co., Ltd which was specialized lubricants sales company was launched in 1960
In 1962 according to Korea National Oil Corporation Act, KNOC was established and in
1964 daily production capacity 35,000 bbl of Ulsan refinery plant was operated. In 1965,
Kukdong Shell Refinery Co., obtained first KS approval on Lubricants product and in 1968
Kukdong Petroleum produced base oil
‘The 1970s it was the growing period of joint venture with foreign oil major and rapid
expansion time of Lubricants industry.
‘Table 3) Lubricants Manufacturer and Foreign Partner in 1960 & 1970
Joint Venture Company Foreign Partner Partner Origin Established
KNOC’ Guit USA 1962,
Honam refinery Caltex USA 1967
Kukéong Shell retinery Shell UK & Holand 1969)
Kyungin Eneroy Union oil USA 1969)
Mobil Korea Mobil Lubricants USA 1973
‘Bumwoo Chemical Yushiro Chemical Japan 1973
Korea Houghton Houghton USA 1974
Hane Petroleum NiOc' tran 1976
Kiuber Lubrication Korea Kiuber German 1979)
Source = KNOC, SK, Mobil
As Lubricants industry was growing and lots of product including domestic and foreign
brands was supplied, it was necessary to prevent circulation of similar trademarks and
substandard products and as a result Korea Petroleum Quality Inspection Institute was
established for prohibition of production or sales of illegal petroleum products and
mandatory quality inspection in 1969. Currently name of institute was changed to Korea
Petroleum Quality & Distribution Authority and perform the extended roles related
petroleum works.
Government enforced the localization policy of base oil for the purpose of stable supply
of lubricant from 1976 and as a result Ssangyong Refinery operated the facilities of98 Journal of Franchise Management Volume 4 Number 1 (Serial Number 6)
capacity 3,000 BPCD in 1981 and Kukdong Petroleum Co., produced 1,085 BPCD of base
oil in 1983(Kong, SS, 1991). On behalf of govemment's encourage policy, domestic base
oil market was settled in 1980s and free trade of base oil allowed in 1989. From then
Lubricants industry in eamest entered into a free market economic system, and the
Lubricants manufacturing was anchored to three category as first petroleum refinery, second
petroleum refinery and lubricants manufacturing, third lubricants manufacturing,
5. Market Consumption
1, Market Size
The consumption of Lubricants is closely related to overall economic situations as
mentioned According to development of public and private transportation and industry the
consumption is increased(Kang, D. K, 1986). It means Lubricants consumption is growing
with the size of the economy and national income
‘The market size of domestic lubricants is 996 Million Liter and amount 1.5 Trillion Won
in 2012. Before IMF crisis in 1998, the domestic lubricants market grow highly annual
growth rate of 9.2% but in 1998 the lubricants consumption is sharply decreased by 24%
009).
than precious year(SBC,
(Table 4) : Economic Growth and Lubricants inorease rate
FY 2007 2008 2009 2010 2011 2012
Economic Growth (7) a4 23 03 63 37 20
GDP {Tiillion Won) 975.0 | 1,026.5 | 1,065.0 | 1.1732 | 1.2351 | 1.2725
Lube Consumption (KL) | 970.123 | 968,557 | 863,496 | 991,732 | 1.010.515 | 997.935
Increase Rate (76) 4.66 -016 | -109 | 1486 19 1.3
Source = Korea Lubricating Oil Industries Association / Statistics Korea
After 2000 the consumption was recovered slowly and market picked up same as before
IMF crisis. But once again due to global financial crisis in 2008, the consumption was
shrunken again by 20% and it was equivalent level of reduction with IMF crisis, During
those period machinery industry which is high lubricants and energy consumption industry
‘was recessed and it was one of main factor of reduction. From 2010 the consumption is
increased slightly according to recovery of economy. But last year consumption was alsoCase Study for Distribution Channel of Lubricants and Franchise Network of Korea _99
decreased compare to previous year and current global economic downtum and decline in
exports is a negative effect of its consumption, Due to tardy growth of in economy this
level will be kept for the time being
5.2. Market Segment
There are several ways to classify the Lubricants market by application or material or
performance etc. Korea Lubricating Oil Industries Association classified 5 categories as
Automotive, Marine, Industrial, Metal Working Fluid and Others for the statistics of
Lubricant sales same as Japan statistics
‘The biggest segment is automotive and its demand is directly related to the number of
vehicles and consumption of lubricating oil per vehicle(Song, M K. 2009). Recent the
number of registered vehicles are increasing annually 2~3% each but according to the
survey of automotive mileage by Korea Transportation Safety Authority current average
mileage is 46.2km which reduced by more than 50% comparing to 20 years ago. It comes
from the less driving of private car due to fitel price increasing and improved public
transportation service. Also annual lubricants consumption per vehicle is decreasing from
22.0 Liter in 2005 to 19.2 Liter in 2011 by less mileage and longer interval of lubricants
change resulted from quality improvement of lubricants and cars(John Martin, 2010). As a
result overall consumption of automotive is stagnant.
{Table 5) : Lubricants Consumption (unt : thousand KL)
Category 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | ws Dei
Automotive | 352 | 32 | 23 | 350 | 304 | 348 | a49% | -17%
Industrial 2 | 24 | 1a5 | 209 | 206 | 210 | aiw | 19%
Marine ws | 13 | to [ m7 [ve fom [ae | 67%
Metal working | 104 | 103 | 94 | 121 | 120 | 129 | 129% | 00%
Others tea | 172 | 154 | 195 | 202 | 199 | 200% | 15%
Total 970 | 969 | 863 | 992 [1.010 | 995 | 100%
Source * Korea Lubricating Oil Industries Association
‘The second is industrial lubricants of m/s 21.1% which all kind of industry involved such
as general manufacturing, energy, steel and paper industry etc. Among general
manufacturing its consumption is influenced mainly by the automotive industry and100 Joumal of Franchise Management Volume 4 Number 1 (Serial Number 6)
machinery industry as these industries wield strong influence on other sub-industry and
operation rate of many individual factories. Steel industry is one of the huge consumption
sector and nowadays energy industry consumption is increasing owing to big investment in
power plant.
Marine section is normally contains the consumption of aviation due to small portion
compare to marine and other group. Marine and aviation consumption is naturally close
relation with local ship building and vessel operation status which is indicator of import and
export business
Metal working sector is a kind of lubricants related to cutting and machining of metals,
rolling of steels, heat treatment and rust preventing, Cutting and machining is influenced by
operation sate of general manufacturing industry such as automotive part manufacturing and
machine manufacturing Rolling oil is mainly subjected to operation fluctuation and
investment of steel industry. Heat treatment and rust preventing is one of important role of
lubricants and also affected overall manufacturing prosperity and adversity
Others include Grease, insulating oil and process oil which is a kind of specialties for
their usage Insulating oil is related with electric equipment like oil-filled transformers, high
voltage capacitors and circuit breakers mainly for electrical insulating and coolant. Process
is a kind of raw material in process of plasticizers for the rubber industry like tire
manufacturer. Grease is a soft solid at room temperature and consists of soap emulsified
with mineral. It is applied to mechanisms that can only be lubricated infrequently and
where a lubricating oil would not stay in position It act as sealants to prevent ingress of
‘water and incompressible materials
5.3, Industrial Lubricants vs, Automotive Lubricants
Industrial lubricants are used for all kind of industry which have production and so have
different characteristics from automotive lubricants. The process of purchasing industrial
lubricants is more complicated and takes longer time (Kong S. S, 1991). The demand for
industrial lubricants is influenced by overall economic situation but the condition of each
industry is more important to the consumption of each company. For example, when the
boom in shipbuilding that one is to increase the quantity supplied to the shipyard, and if
steel industry is slump the consumption of steel manufacturer is reduced. In recent years,
the demand for energy industry is increased owing to construction of new power plants
caused by instability of the electric power supply. Conversely, due to recession of general(Case Study for Distribution Channel of Lubricants and Frenchise Network of Korea 101
construction, manufacturer of construction materials including elevator manufactures's
demand is markedly reduced circumstances. Thus the fluctuation of industrial lubricants
demand is in accordance with the atmosphere of each industry
In case of automotive lubricants which is close to consumer goods is directly affected by
driving milage of car. For the passenger car, the consumption of lubricants is connected to
the economic situation as income of individuals is closely depend on the economic
conditions. For commercial vehicles, the consumption of lubricants is affected by the
logistics demand which is connected to the economic up and down
Demand of industrial goods affected by consumer goods and derived demand change is
greater than the consumer product change (Lee, S. H. et al, 2007), and consumer goods
also influenced by general economic situation, The consumption of industrial lubricants is
deeply connected of each industrial economic condition and automotive lubricants is also
affected by surroundings, so both are mutually influenced in long term perspective
6. Distribution Channel
6.1, Channel Members
American Marketing Association define the distribution channels as "any firms or
individuals who participate in the flow goods and services as they move from a producer
to an ultimate or industrial user"(Committee on Definitions AMA, 1960). In case of product
distribution appropriate number of middleman can increase the efficiency of time, place and
storage between the producer and consumer or end user (Han, Jk, 2006)
‘As most manufacturers sell their products not directly to consumers but distribution
channel, Lubricants manufacturer have similar distribution channel in Korea Distribution
structure of the domestic Lubricants market is very close with that of gasoline and other
fuel business because it was stated with gas station industry
Distribution channel of Lubricants is different according to the brand. It means lo
brand and imported global brands have different distribution structure And also it is
distinguished by application, automotive and industrial(Lee, U. H, 1996).
Distribution channels of fuel gas is simple and well-rounded structure as the refinery companies
sells the products to distributor and distributor reselling to the gas station(Bae, BR. et al,
1999) but Lubricants have one or two more channel member than fuel business. General roll
and characteristic of each members of Lubricants distribution channels are as follows.102__Joumal of Franchise Management Volume 4 Number 1 (Seri Number 6)
Manufacturer
/Refinery
T
Distributor l
Gas Station r! ‘Sub—Distributor
EndUser_}
[Fig, 2] Distribution Channel of Petroleum and Lubricants
Source = Understanding of Petroleum Industry / Korea National Qi! Corporation
Direct sales from Lubricant manufacturer to end user is the shortest and limited in case
to equipment builder or huge consumer of lubricants. It happen more in imported brand
channel than local brand
The official Distributor is subject wito contract with manufacturer and supply Lubricants
to end user, retailer or sub-distributor(dealer). Distributor is most important channel member
and conduct the roll of purchasing, stocking, ensuring all sales and other business activities
performed, In the case of domestic brand, there are limited number of distributor and they
sell mainly to sub-dealer In contrast, global brand manufacturer contract with more
distributor who sell the lubricants mainly to end user or retailer than sub-distributor
Distibutor scale of local brand is larger than its global brand as manufacturer of local
brand confer the distributorship of fuel oil like gasoline and diesel
Sub-distributor(Dealer) is one of specialized sales channel member and
ed as
‘Bupanjum’ means sub sales representative in Lubricants industry to distinguish from limited
number of official distributor of domestic refinery(Lee, U. H, 1996). They usually sell
multi brand to retailer or end user on the contrary distributor trade single brand contracted
Sub-distributor locate in close proximity to the consumer and perform the business on the
basis of expertise, experience and the relationship with consumers
Retailer is the last distribution channel to end user and in case of automotive lubricants
it may be the auto maintenance shop, auto accessory shop and large discount stores. In
Korea auto maintenance shop is major representative and discount store is insignificant
among retailer(Brand Management Center), They offer the customer various services to
manage customer and secure new accountsCase Study for Distbution Channel of Lubricants and Franchise Network of Korea 103
Gas station is associated with local refineries brand of lubricants but minor distribution
channel in Korea.
Domestic Lubricants distribution channel is different between automotive lubricants and
industrial lubricants as user purchasing behavior is different Automotive distribution have
both B2B and B2C trade on the contrary industrial distribution is B2B trade.
6.2, Channel Features of Global Brand & Local Brand
As well as the difference of distribution structure between automotive and Industrial
Lubricants, there are some difference between local brand and global brand. SK is a typical
local company which have refinery plant and naturally have fuel business in domestic
market. GS Caltex and S-oil Total, they are similar with SK but not independent but joint
venture with global brand. In case of Kukdong Oil & Chem and Mlchang Oil Industry,
they are local company without refinery. Another group is imported global brand such as
Mobil, Shell, Castrol and Fuch which they have no refinery and no fuel business in Korea
‘The manufacturing company of SK Lubricants brand ZIC is SK Lubricants Co, Ltd. and
they have limited number of official distributor including SK Networks who is subsidiary of
SK. Official distnbutor of SK trade the fuel and Lubricants both In case of Lubricants they
sell the product to sub-distributor and big end user. GS is similar to SK as GS contract
several official distributor and they distribute Lubricants to sub-distributor and end user. But
Scoil is different as they have more number of distributor on a nationwide scale. The others
including local specialized Lubricants manufacturer and global brand waich have no refinery
and no fuel business construct distribution network by contract with distributor according to
regional criteria It means business temsitory which distributor can conduct sales and
distribute. They can sell also sub-distributor but mainly target to secure end user
6.3, Channel Features of Industrial Lubricants
Distribution channel of industrial lubricants are divided as 1) Direct sales from the
manufacturer to industry 2) from the manufacturer to the customer via distributer 3)
Distributor sell to sub-distributor and sub-distributor supply to the customer
Direct sales from the manufacturer to customer in the industry is limited to the large
scale of consumer as they have purchasing power and buy in low price. In this case, the
manufacturer is responsible for industry sales representatives and sometimes they run the
‘branch offices to suggest direct support104 _Joumal of Franchise Management Volume 4 Number 1 (Serial Number 6)
Manufacturers cannot sell the entire amount by direct transaction so they secure the
exclusive distribution network for stable sales and it is most common channel. For this
purpose, distributors are required to establish the proper facility like warchouse and
sufficient transportation, They also requested to set up the organization to provide ongoing
technical support and sufficient financial ability to support all of these necessity
The other case is also common in local refinery brand. They contract with a small
number of distributors and let them to provide to sub-distibutor for end user
Sub-distributors are not contractual relationship with manufacturer and purchase several
different brands from other distributor or dealer. It allow them to supply multi brand to
customer according their need but they have disadvantage of not supported from
manufacturer directly in technical and marketing
Such as significants characteristics of industrial goods, industrial lubricants supply channel
keep more longer relationship with customer compare to the automotive lubricants channel
However, it takes a longer time to decide the provider and a large number of intemal
members participate in decision-making
6.4, Channel Features of Auto Lubricants
‘The difference of automotive lubricant distribution is there are one or more intermediate
stage than industrial distribution, I's mainly caused as car owners do not change the
lubricants by themselves but visit maintenance shop for lubricants change. That is to say
maintenance shop, car wash shop and garage can classified as retailer in automotive
Lubricants distribution Nowadays purchasing from discount store and intemet is increasing
‘but still minor portion. Automotive lubricants distributed similar like general commodity and
it means price and amicable logistics is more effective than technical service or long term
AIS.
Distribution channel of automotive lubricants is more complicated than industrial as above